4 regional bank stocks rooted for further rate hikes

The Federal Reserve recently announced a much-anticipated interest rate hike – a 25 basis point hike that is expected to be only the first of several this year. The ferocity of the Fed is expected to be a boon for the financial sector, including a wide swath of US regional bank stocks.

The Fed’s March rate hike was the first since 2018. But it certainly won’t be the last. The central bank signaled the possibility of six more hikes in 2022 to fight inflation, in line with Kiplinger’s interest rate forecast.

Bank stocks can, of course, benefit from a windfall of higher interest rates. The bank compensates the depositor at an interest rate and then lends that money out at a slightly higher interest rate. The difference, or net interest margin, is an important source of income. (The risk, of course, is that too high rates will stifle loan demand.)

And while some worry about the possibility of a yield curve inversion (where long-term rates fall below short-term rates), Morgan Stanley research analyst Betsy Graseck says that ‘a superficial inversion should not significantly weigh on the space.

“Banks have generated positive loan growth in each of the 11 periods of curve inversions (two-year/10-year) since 1969,” she says, adding that she expects growth lending accelerates from -2% in 2021 to around 7% in 2022, even if the curve inverts in line with his views.

Today, we’ll look at a group of companies that are more likely than other financial stocks to benefit from rising rates: namely, regional bank stocks. Regional banks are often more rate sensitive than their larger counterparts because they do not have other businesses, such as trading desks, that are less tied to interest rates.

By using the TipRanks databasewe shortlisted four regional banking stocks that are strongly favored by their covering analysts.

Data is as of March 21. TipRanks price targets and consensus ratings are based on analyst opinions issued over the past three months. Shares are listed in reverse order of 12-month price targets.

1 of 4

Comedy

  • Market value: $12.4 billion
  • TipRanks Consensus Price Target: $104.31 (11% upside potential)
  • TipRanks Consensus Rating: Moderate purchase

Comedy (CMA, $94.32) is a Dallas-based “super-regional” with more than 430 branches, primarily in Texas, Arizona, California, Florida and Michigan. It is among the 50 largest commercial financial holding companies in the United States, with nearly $95 billion in total assets, $82.3 billion in total deposits, and $49.3 billion in total loans.

Earlier in March, ahead of an RBC capital markets conference, Comerica provided analysts with a mid-quarter update. According to the update, the bank’s average loans jumped $300 million to $48.1 billion through Feb. 28. This is the first sequential quarter-over-quarter increase since the second quarter of 2020, according to Wedbush analyst Peter Winter, who considers CMA “one of the most indebted banks in an economic recovery as it maintains one of the most asset-sensitive balance sheets in our group.”

“Core loan growth trends are improving and [Comerica] has a significantly higher percentage of cash to productive assets compared to its peers,” adds Winter, who rates the stock at Outperform (equivalent to buy) with a 12-month price target of $103 per share. .

Raymond James analyst Michael Rose (outperformer) echoes Winter’s sentiment on regional bank stocks: “Looking ahead, all eyes remain on rate expectations, where Comerica reigns as one of the most asset-sensitive names in the industry.”

They are two of seven analysts covering who have issued buy calls on CMA shares in the past three months, representing half of the total number of analysts who have called on Comerica during this period. Find out which other analysts are part of the CMA Buy camp on TipRanks.

2 out of 4

Synovus Financial

Synovus logo on smartphone screen
  • Market value: $7.2 billion
  • TipRanks Consensus Price Target: $61.11 (23% upside potential)
  • TipRanks Consensus Rating: strong purchase

Synovus Financial (SNV, $49.73) is a Columbus, Georgia-based regional bank with approximately $57 billion in assets. It provides both commercial and retail banking and a full range of products and services, including cash management, wealth management, private banking and mortgage services.

Jefferies analyst Casey Haire is optimistic about Synovus’ concentrated footprint in the southeastern United States, which covers most major markets there. And while she’s less optimistic about the company’s recent performance projections, she thinks SNV shares have a lot of upside even if Synovus fails.

“Management delivered an upbeat presentation outlining ambitious financial targets. These steps are achievable but require a hawkish Fed, flawless execution of new initiatives and strong cost discipline, which is a lot to ask for in our view.” , said Haire, who evaluates the title. to Buy with a price target of $61. “AT [11 times estimated 2023 earnings]the bar is low enough that management doesn’t need to fully adhere to these parameters, but simply move forward, which in our view is very likely given the recent loan growth momentum.”

Jennifer Demba and Brandon King (Buy) of Truist weighed in, adding that “SNV has become a more sophisticated regional bank that has and will continue to capitalize on disruption opportunities from mergers and acquisitions. We are particularly optimistic about the prospects for growth in the wholesale banking and treasury and payment services, complemented by new initiatives in corporate and investment banking.”

Nine of nine hedging analysts polled by TipRanks who surveyed over the past three months rated SNV stock as a buy. Check out their price targets and analysis on TipRanks.

3 out of 4

Bancorp East-West

big bank buildings in the financial district
  • Market value: $11.6 billion
  • TipRanks Consensus Price Target: $102.80 (26% upside potential)
  • TipRanks Consensus Rating: strong purchase

Bancorp East-West (EWBC, $81.41), the holding company behind East West Bank, is a regional company based in Pasadena, Calif., with more than $60 billion in total assets and more than 120 branches in the United States and China. Indeed, EWBC focuses on serving the Chinese-American immigrant community and Chinese immigrants to the United States.

EWBC is “unique” among regional bank stocks, according to Jeffereis’ Haire (Buy, $107 price target), as it acts as an “economic bridge between the world’s two largest economies.” She also believes EWBC can generate above-average returns in residential mortgage lending because of the bank’s “unique affinity relationship” with its Chinese-American customer base.

That said, in the fourth quarter, the bank’s strongest loan growth (non-PPP) came from commercial and industrial (C&I) loans, which grew 16% annualized.

“EWBC tends to be a less discussed stock among many investors,” add UBS analysts Brock Vandervliet and Vilas Abraham (Buy, $120 price target). “It’s unfortunate, as we believe EWBC is poised to outperform this year with higher loan guidance on top of already high levels of growth and efficiency.”

Four of five covering analysts polled by TipRanks have called EWBC stock a buy over the past three months. The only dissenter was a simple Hold call. See the full analyst forecast for EWBC stocks on TipRanks.

4 out of 4

Signature Bank

Signature Bank
  • Market value: $19.5 billion
  • TipRanks Consensus Price Target: $438.57 (41% upside potential)
  • TipRanks Consensus Rating: strong purchase

Signature Bank (SBNY, $311.15) is a full-service commercial bank with 37 private client offices in the New York metro area, as well as Connecticut, California and North Carolina. At the end of 2021, SBNY had over $118 billion in assets and approximately $106 billion in deposits.

Jeffries analyst Ken Usdin says Signature Bank shares remain a buy after the recent interest rate hike. The analyst expects four rate hikes this year and another rate hike in 2023. Usdin believes that with higher interest rates to contain inflation, the yield curve should steepen, which will allow banks to borrow money at lower rates but to lend it out. at higher rates.

A steeper yield curve benefits banks because it means they borrow money at a much lower interest rate than the rate at which they lend it.

For SBNY, according to Usdin, this could lead to high double-digit loan growth while bank fees rise to high single digits.

Signature Bank closed 2021 with exceptional growth. The bank’s net interest income jumped 35.7% year-over-year to $535.9 million on growth in average interest-earning assets. Higher service fees and charges also led to a 38.4% year-over-year improvement in non-interest income to $33.5 million.

Other Wall Street analysts echo Usdin’s view. SBNY boasts a strong buy consensus rating and an average price target of $438.57 – one of the highest implied bulls among regional bank stocks. You can learn more about the analyst community’s views on SBNY via TipRanks Stock Forecasts.

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